Advanced Tax Strategies for Tech Founders and Exit Planning
A successful exit can be the financial event of a lifetime — but it's also a major tax event. If you're a tech founder preparing to sell your company or your equity stake, the timing, structure, and details of your deal can make millions of dollars of difference on your after-tax outcome.
Below are key strategies I regularly use with founders preparing for exits — whether it’s an M&A transaction, equity sale, or going public.
Maximize the QSBS Exclusion
If your shares qualify as Qualified Small Business Stock (QSBS) under Section 1202 of the Internal Revenue Code, you may be eligible to exclude up to $10 million or 10x basis in capital gains from federal taxes.
To qualify:
The company must be a C corporation
Assets must not exceed $50 million at the time of issuance
Shares must be held for at least five years
The company must be an active business (not primarily investment holding)
➡️ Advanced move: Use trust structures or family members to “stack” multiple QSBS exemptions.
Use 83(b) Elections for Founder Stock
Founders often receive their stock when it’s still restricted. Filing an 83(b) election within 30 days of receiving restricted shares locks in their value as ordinary income at the time of grant, not at vesting.
This allows:
Long-term capital gains treatment from that early date
Avoidance of ordinary income when stock appreciates
Alignment with the 5-year QSBS holding period
Miss the election, and you could be paying up to 37% federal tax later on the same equity.
Start the QSBS Clock as Early as Possible
If you’re building a new product or spinning out IP, make sure ownership of that intellectual property lands with a newly formed C corp. The earlier you start the QSBS clock, the sooner you’ll hit the 5-year holding requirement.
This is especially important if you're seeking a liquidity event within the next decade.
Mind the State Tax Angle
States like California do not conform to federal QSBS rules — which means you could owe 13.3% in capital gains tax even if you’re federally exempt.
Strategies to mitigate:
Change domicile to a QSBS-friendly state (like Florida or Texas) before the 5-year mark
Consider non-grantor trusts or alternative ownership paths
Relocate IP or new company formation depending on timeline
Use Installment Sales When Possible
For certain exits, you can negotiate an installment sale, allowing payments to be received over multiple years. This:
Defers tax liability to the year income is received
Smooths out income spikes
Allows reinvestment and planning across years
Important: QSBS and installment sales don’t always mix — but in the right scenario, they can be used in tandem.
Bonus: Coordinate With Your Advisors Early
Don’t wait until a deal is on the table. The best tax strategies must be in place years before exit. This includes:
Corporate structuring
Stock issuance terms
Trust planning
Domicile strategy
Phantom income mitigation from RSUs or bonuses
Final Thought
Exit planning isn’t just about cashing out — it’s about setting up the right structure at the right time so you keep more of what you’ve built. A few smart tax moves can dramatically change your outcome.